BA tie with American Airlines 'imminent'

A long-rumoured alliance between British Airways and American Airlines that would allow the two carriers to assert a strong grip on traffic across the Atlantic could be announced next week.

Neither airline would comment on strong speculation yesterday that suggested a deal between them might be imminent, and that it would be a focus of talks between British and American government officials on Monday on the issue of liberalising aviation between the US and Britain.

Any arrangement between the carriers, particularly if it were to go beyond code-sharing, would require special dispensation from US competition rules. United Airlines and Lufthansa were granted immunity from the regulations earlier this month to allow cooperation on flights between the US and Germany.

People familiar with the British Airways and American Airlines talks said that the two sides had moved beyond consideration of common marketing arrangements and were designing a pact that would include revenue-sharing on certain routes.

Robert Crandall, chairman of American Airlines, confirmed earlier last week that his company had been in discussions with British Airways and also with KLM and Air France. Of the speculation about British Airways, he said: "This is just the flavour of the week".

Renewed rumours of a deal will unsettle USAir, in which BA has a 24.6 per cent stake. Only the most limited deal with American Airlines would allow BA to retain its ownership in USAir, which competes directly with American in some US markets that serve as jumping off points for flights to Europe.

Some kind of embrace between BA and American is likely to impress Wall Street, however. Analysts argue that airlines will increasingly need to link up with each other to ensure their survival and remain competitive, especially on international routes. Strengthened by the speculation, shares of American Airlines had risen by $1.37 to $95.50 by mid-morning in New York yesterday.

In spite of having the highest costs in the industry, USAir has recently returned to profit. However, it remains in a fragile state. It engaged briefly last year in talks with United and American about merging with either one of them, but they were quickly broken off.

British government officials confirmed yesterday that talks with the US on an "open-skies" pact between the two countries had resumed at an informal level.

Formal negotiations between the sides broke off last autumn after the US turned down an offer from Britain that would have given American carriers free access to all UK airports, except for Heathrow and Gatwick.